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Published On: Wed, Feb 15th, 2012

Krugman changes his tune, just in time to shill for Obama

I have said many times that Paul Krugman is much more a political operative than an economist, and while that makes people mad, it also is true. And the day before President Obama’s State of the Union Speech, suddenly the gloomy, “We-Are-Practicing-Austerity” Krugman was singing the praises of Obama the Great.

Yes, this is the same Obama that recently Krugman was claiming was not spending enough and was going to throw us into another downturn because of his policies of “austerity.” But now that we are in a political campaign, Krugman is singing, “Happy Days are Here Again.”

He claims that he was abused when he pointed out the housing bubble, and I find it interesting that in his blog posts and elsewhere, he has attacked Peter Schiff, yet it was Schiff who was the most vocal about the bubble and its meaning. Furthermore, Mark Thornton in 2004 had made the point about the bubble, and Ron Paul was playing Paul Revere on the subject in 2003. However, since Krugman thinks Austrians are idiots and don’t know any economics, he throws the Austrian warnings down the Orwellian Memory Hole.

(Now, don’t forget that Krugman’s good friend Ben Bernanke also missed the bubble, but Krugman isn’t about to jump on his ally for being wrong. No, Krugman is much too smart a political operative to do that.)

Yet, there are a couple things in this column that are puzzling. First, he claims that somehow we can revive the economy with…more housing:

But the economy is depressed, in large part, because of the housing bust, which immediately suggests the possibility of a virtuous circle: an improving economy leads to a surge in home purchases, which leads to more construction, which strengthens the economy further, and so on. And if you squint hard at recent data, it looks as if something like that may be starting: home sales are up, unemployment claims are down, and builders’ confidence is rising.

And why might housing be a bright spot in the future? He writes:

Furthermore, the chances for a virtuous circle have been rising, because we’ve made significant progress on the debt front.

That’s not what you hear in public debate, of course, where all the focus is on rising government debt. But anyone who has looked seriously at how we got into this slump knows that private debt, especially household debt, was the real culprit: it was the explosion of household debt during the Bush years that set the stage for the crisis. And the good news is that this private debt has declined in dollar terms, and declined substantially as a percentage of G.D.P., since the end of 2008.

Krugman is talking apples and oranges. No one has claimed that government debt brought about the recession; instead, they are saying that adding trillions of dollars of government debt only exacerbates the problem. Moreover, he is saying that housing has bottomed and maybe things will get better.

Why didn’t housing bottom sooner? It did not bottom because Krugman and others argued that the government should continue to pump huge amounts of money into those failing sectors in order to prop them up, as though higher prices bring prosperity. So, the government did just that and housing fell, albeit more slowly, but it fell, so the pain was stretched out.

So, in order to avoid a worse recession, the government created a depression. But now that Obama is up for re-election, suddenly he is Mr. Job Creator. Yes, the man who has pumped hundreds of billions of dollars into “green energy” and other such boondoggles suddenly is responsible for bringing back prosperity. Somehow, I doubt that is happening, but political operatives are not exactly known for their truth telling.

As for Krugman’s claim that more inflation and more government debt will give us recovery, Frank Shostak, who is a much better economic analyst than Krugman, says that recovery will come only when the government ends its jihad against savings. No, Shostak doesn’t have a Nobel, but he does actually understand economics.

Check out the “Krugman in Wonderland” posts here the Disptach – click here


William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

Read more at “Krugman-in-Wonderland”

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About the Author

- William L. Anderson is an author and an associate professor of economics at Frostburg State University in Maryland. He is also an adjunct scholar with the Mackinac Center for Public Policy as well as for the Ludwig von Mises Institute in Alabama.

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